Parts and service are key parts of Caterpillar's future plan

Tuesday

Sep 12, 2017 at 9:13 PMSep 12, 2017 at 10:45 PM

Matt Buedel Journal Star Caterpillar/industry reporter @journobuedel

TUCSON, ARIZ. — Caterpillar Inc. won't say exactly what it expects sales to reach after emerging from the longest downturn in its history — but its main focus will be on growing profitability in all parts of its business.

And one of the key strategies to do so will be using its digitally connected machines to expand service offerings to end users of Cat equipment, reinforcing the already integral aftermarket parts business that has proved particularly profitable for the largest manufacturer of earth moving equipment in the world.

"Our overriding objective is to grow profitability," CEO Jim Umpleby said Tuesday during his first investor day event as the company's top executive. "We are focused on fixing businesses that are not producing acceptable returns."

Umpleby and each of the five group presidents addressed dozens of analysts and investors in Tucson, Ariz., to outline the new leadership team's strategy for the future of the business.

The executives adopted an operating and execution model that allocates resources to the segments of the business that show the most potential for growth — leaving open the possibility of some product lines being slimmed — with a clearly stated goal of improving profit margins across all sectors.

With sales and revenue of $55 billion — a figure not seen since 2013 and 2014 — the company historically achieved about 12 percent profit margin, but expects that rate to widen by 2 to 5 percent under the new strategy.

Investors apparently embraced the plan, bidding up Caterpillar stock more than 1.7 percent to close on the New York Stock Exchange at a record $120.94 per share on Tuesday.

Umpleby said the company is committed to both short-term targets and long-term growth, with a renewed emphasis on connecting the fleet of Caterpillar machines in the field and using the analytics those connections provide to secure more customer service agreements.

"Those are areas you can bet we will spend money on," Umpleby said. "This is the way we will manage the business moving forward."

Caterpillar already is entering into relationships with customers in new and profound ways, said Denise Johnson, group president of resource industries, the segment of Cat responsible for mining equipment.

As part of its push to implement autonomous fleet solutions for mine operators, Caterpillar has worked to help design one mine for a year before it opened, delivering what Johnson said was a 20 percent productivity boost to the mine before autonomous equipment even arrived on site.

"We're involved in things we've never been involved with before," Johnson said. "We understand our customer better than ever before, and as a result, we get that trusted adviser role."

The sensors Caterpillar has developed and embedded in its machines also helps the company understand the way customers use the equipment better than ever before — and that understanding has vast implications for the way Cat and its dealers can work to service the equipment.

Rob Charter, group president with responsibility for customer and dealer support, said the data provided by connected machines can help Caterpillar achieve what customers want from the manufacturer.

"They're asking for lower owning and operating costs," Charter said. "We need to be easy to do business with going forward."

Part of that plan includes development of e-commerce solution for aftermarket parts sales to all tiers of Caterpillar customers, either through dealer relationships or directly from the manufacturer.

And with the data from individual machines, Caterpillar can better anticipate parts needs and have the right parts ready to go before they are needed, reducing equipment down time.

"This is really, really powerful," Charter said. "That's the heart of making sure our customers are more successful working with Caterpillar than any of our competitors."

Matt Buedel can be reached at 686-3154 or mbuedel@pjstar.com. Follow him on Twitter @JournoBuedel.

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